Why Do Companies Sell Stocks? Benefits for Investors and Companies

Introduction

Snap Inc., the parent company of Snapchat, is one of those tech firms that often gets overlooked in conversations dominated by giants like Meta, TikTok, and YouTube. Yet, quietly, Snap has built a large global presence. Snapchat now reaches close to a billion monthly active users and continues to grow its subscription service, Snapchat+. What makes Snap stand out is its deep connection with younger demographics. It consistently ranks among the top platforms for Gen Z and millennials, who are not just passive scrollers but active creators and sharers.

What makes Snap particularly interesting is how it positions itself differently from traditional social networks. Instead of focusing on public feeds, it emphasizes private, real-time communication, visual storytelling, and augmented reality features. This has helped the company stay culturally relevant, even as competitors aggressively copy its ideas. At the same time, Snap’s innovations in AR lenses and camera technology hint at a long-term vision that goes beyond just social media it’s edging toward becoming a leader in consumer-facing AR.

Still, the big question for investors and users alike is whether Snap can translate all this popularity into consistent profitability. The company generates strong advertising revenue, but rising competition, slowing ad budgets, and its ongoing struggle to produce stable earnings keep it under pressure. As someone who has been following the stock closely, I see Snap as a company at a crossroads. On one side, it has a loyal and highly engaged user base, creative ad formats, and forward-looking AR technology. On the other, it faces steep competition, monetization challenges, and the constant need to prove its long-term financial sustainability.

With this balance of strengths and hurdles, Snap remains a fascinating company to watch. Let’s dive deeper into what makes it tick and whether it can deliver lasting value in the future.

Business Snapshot

• Daily Active Users (Q2 2025): 469 million (+9% YoY)
• Snap continues to expand its reach. For perspective, this is more than Twitter/X and Pinterest combined, showing that Snapchat is far from a “niche” app.

• Monthly Active Users: 932 million
• Nearly a billion people use Snapchat every month, which places it among the top global platforms. Its strength lies in younger demographics, where it consistently outperforms rivals.

• Spotlight (short video) Users: 550 million MAUs
• Spotlight, Snap’s answer to TikTok’s short-form video, has become a major driver of engagement. This shows Snap is not just about private chats and Stories but is successfully competing in the broader short-video market.

• Revenue (Q2 2025): $1.345 billion (+9% YoY)
• The company is seeing steady growth in ad revenue, despite a tough digital advertising environment. A nearly double-digit increase is a healthy sign compared to peers that are facing slowdown pressures.

• ARPU (Average Revenue Per User): $2.87
• While ARPU is lower than Meta or YouTube, it reflects Snap’s untapped potential. If Snap can close the monetization gap, revenue growth could accelerate meaningfully.

• Gross Margin: 51%
• A strong gross margin indicates Snap is efficient at generating revenue once infrastructure costs are covered. However, the challenge lies in turning this into consistent bottom-line profitability.

• Adjusted EBITDA: $41 million
• The company is managing to stay positive on an adjusted EBITDA basis, which is an encouraging sign. It shows improvements in operating discipline, even though net losses remain high.

• Net Loss: $263 million
• Profitability remains Snap’s biggest hurdle. The losses highlight that despite user and revenue growth, the company still hasn’t cracked the code on sustainable earnings.

• Cash Balance: $2.9 billion
• With nearly $3 billion in cash, Snap has a comfortable buffer to invest in new features, expand AR capabilities, and weather downturns. This gives it more flexibility than smaller rivals.

• Subscribers (Snapchat+): 16 million
• Snapchat+ is growing steadily. While still a small fraction of total users, it signals Snap’s commitment to diversifying beyond ads. Subscription revenue, though modest, could help reduce reliance on volatile ad markets.

Summary: At its core, Snap earns the majority of its money from digital ads, but the company is slowly building a second growth engine with Snapchat+. The combination of scale, young audience engagement, and experiments in AR and subscriptions makes Snap unique. The challenge is clear: grow revenue per user and move toward consistent profitability while fending off competition from TikTok, Meta, and YouTube.

Key Growth Drivers

• Advertising Evolution: Advertising remains Snap’s core business, and the company is working hard to modernize its ad platform. It’s introducing more automation, AI-driven bidding systems, and new ad formats such as “Sponsored Snaps” directly in chat feeds. These changes are designed to make ads more relevant and improve ROI for advertisers. However, Snap is still facing pressure from lower eCPMs (effective cost per thousand impressions), which means it earns less for each ad shown compared to competitors like Meta. If Snap can successfully rebuild its ad tech stack, it could regain pricing power and unlock stronger monetization.

• Subscriptions: Snapchat+ and Lens+ mark a new chapter for Snap. These premium subscriptions offer features like early access to experimental tools, exclusive lenses, and enhanced personalization. While currently just 16 million subscribers out of nearly a billion users, the potential scale is enormous. Subscriptions also bring more predictable, recurring revenue, which helps balance out the volatility of digital ad spending. This diversification is important as ad markets tighten during economic slowdowns.

• Short-Form Video (Spotlight): Spotlight, Snap’s version of TikTok and Instagram Reels, has quietly become a major driver of engagement. Time spent on Spotlight jumped 23% year-over-year and now accounts for over 40% of total content consumption on the platform. That shift is significant because advertisers increasingly want to be where young audiences spend their time. If Snap can further monetize Spotlight with creative ad formats, it could turn into a major revenue engine and keep Snapchat relevant in the short-video wars.

• Augmented Reality (AR): AR is Snap’s moonshot. Over 350 million users already interact with AR every day through filters and lenses, making Snap the most mainstream AR platform in the world. The company has built a robust ecosystem with more than 400,000 developers contributing lenses and experiences. Looking ahead, Snap plans to push AR even further with upcoming “Specs” smart glasses expected in 2026. If successful, AR could open entirely new markets for Snap, from immersive ads to AR-powered shopping and virtual commerce. This is the area where Snap could leapfrog competitors, but it’s also where the risks (high R&D costs, adoption uncertainty) are greatest.

Takeaway: Snap’s growth is fueled by a mix of near-term drivers like improved ad technology and short-form video, alongside long-term bets such as subscriptions and AR. If it can execute on both fronts, Snap could strengthen its revenue base and carve out a more defensible position in the social media landscape.

Competitive Landscape

• Meta (Instagram/Facebook): Meta is Snap’s biggest direct competitor in social media advertising. Instagram, in particular, overlaps heavily with Snapchat’s demographic. Reels is Meta’s counter to both TikTok and Snap’s Spotlight, and Meta’s massive scale and advertiser trust make it a tough rival. What Snap offers that Meta doesn’t is a more private, chat-centered experience that resonates strongly with Gen Z.

• TikTok (ByteDance): TikTok is arguably Snap’s most dangerous rival when it comes to attention and time spent. Its algorithmic feed and viral video culture dominate youth engagement worldwide. However, TikTok faces significant regulatory uncertainty in the U.S., and if restrictions or bans ever materialize, Snap could be one of the biggest beneficiaries.

• YouTube (Alphabet): YouTube remains the heavyweight in online video, owning both long-form content and the fast-growing Shorts format. With Google’s deep advertiser relationships and advanced targeting tools, it’s an incredibly strong competitor. Snap differentiates itself by focusing on real-time communication and AR instead of leaning solely on video discovery.

• Pinterest, Reddit, X: These platforms compete more indirectly. Pinterest excels in inspiration-driven shopping ads, Reddit thrives on community engagement, and X focuses on real-time public conversation. Snap’s strength is different it’s built around ephemeral messaging, camera-first interactions, and AR, which don’t directly overlap with these platforms.

Snap’s Differentiation: What sets Snap apart is its younger user base, AR innovation, and private-by-default design. Unlike rivals who try to be all-purpose platforms, Snap leans into intimacy, creativity, and visual communication. This focus is both a strength and a limitation: it keeps Snapchat highly relevant to its core demographic, but it also means Snap has less reach and advertiser scale compared to Meta or YouTube.

Takeaway: Snap sits in a unique position it isn’t the biggest or most profitable player in social media, but it offers something distinct that others can’t fully replicate. Its success will depend on whether it can double down on its strengths while narrowing the monetization gap with larger rivals.

Investment Debate

Like most social media companies, Snap’s stock story is a tug-of-war between strong user growth and persistent profitability challenges. Here’s how the bull and bear cases stack up:

Bull Case

• Strong User Growth: Daily Active Users rose 9% year-over-year to 469 million, an impressive pace given Snap is already at scale. This suggests Snapchat still has room to expand globally, particularly in emerging markets.

• Subscription Momentum: Snapchat+ and Lens+ subscriptions are gaining traction, with 16 million paying users. This gives Snap a growing stream of recurring revenue and helps reduce its heavy reliance on ads.

• AR Leadership: With 350 million daily AR users and an ecosystem of 400k+ developers, Snap is arguably the most mainstream AR platform today. If its future “Specs” glasses gain traction, AR could unlock a new wave of ad and commerce opportunities.

• Ad Platform Upgrades: Snap is rebuilding its advertising system with AI-driven bidding and fresh ad formats. If these changes succeed, eCPMs could rise, boosting monetization and smoothing out revenue volatility.

Bear Case

• Profitability Concerns: Despite growth, Snap reported a net loss of $263 million in Q2 2025. Sustained losses raise concerns about long-term viability if revenue growth slows.

• Tough Competition: Meta and YouTube have unmatched ad tech, measurement tools, and advertiser trust. Snap’s smaller scale makes it harder to compete for large budgets.

• Execution Risk: Rebuilding an ad platform and launching new hardware (like AR glasses) are high-stakes bets. Missteps could waste cash and delay profitability.

• Shareholder Dilution: Ongoing stock-based compensation and potential debt issuance could dilute existing shareholders, especially if losses continue.

• Ad Market Dependence: With ads still the majority of revenue, Snap is vulnerable to macroeconomic downturns that hit marketing budgets.

Takeaway: The investment debate boils down to whether you believe Snap can turn its scale and innovation into lasting profits. Bulls see a unique platform with strong engagement, AR leadership, and a growing subscription base. Bears see an unprofitable company fighting larger, better-resourced rivals while burning cash.

Pros and Cons of Snap Inc.

Pros

• Large and Growing User Base: With 469 million daily active users and 932 million monthly active users, Snap commands a massive global audience that continues to grow.

• Gen Z Stronghold: Snapchat remains one of the most popular platforms among Gen Z and younger millennials, giving advertisers direct access to a hard-to-reach demographic.

• AR Innovation: Snap leads the way in consumer-facing augmented reality, with over 350 million daily AR users and 400k+ developers contributing to its ecosystem. Its AR lenses and tools make it stand out from rivals.

• Ad Format Creativity: From Sponsored Snaps to Spotlight ads, Snap has introduced unique advertising formats that align with its chat-first, camera-driven culture.

• Revenue Diversification: Subscriptions like Snapchat+ (16 million users) provide a growing secondary revenue stream, helping reduce dependence on ads.

• Strong Cash Position: With $2.9 billion in cash, Snap has the resources to invest in R&D, fund new products, and withstand market downturns.

Cons

• Profitability Struggles: Despite scale, Snap remains unprofitable, reporting a net loss of $263 million in Q2 2025. Sustained losses limit its ability to invest aggressively without raising capital.

• Intense Competition: Snap faces powerful rivals Meta’s Instagram, TikTok, and YouTube who have deeper pockets, broader reach, and more mature ad systems.

• Ad Pricing Pressure: Lower eCPMs mean Snap earns less revenue per ad impression compared to competitors, a sign of weaker monetization power.

• Regulatory Dependence: Some of Snap’s upside hinges on TikTok’s U.S. regulatory troubles. If TikTok remains strong, Snap has less room to capture displaced users and ad dollars.

• AR Execution Risk: Snap’s long-term bet on AR hardware, such as the upcoming “Specs,” could fail if adoption is weak or competitors launch more compelling products.

Takeaway: Snap is a company with strong cultural relevance, technological innovation, and a loyal young audience. However, its inability to turn scale into sustainable profits, combined with intense competition, keeps it a risky bet. For investors, Snap represents both significant upside potential and considerable downside risk.

My Take

Personally, I view Snap as a high-risk, high-reward investment. What excites me most is the company’s focus on augmented reality and its deep connection with younger audiences. Very few platforms can claim the kind of cultural relevance that Snapchat has with Gen Z. That level of engagement is a powerful asset that competitors struggle to replicate.

At the same time, Snap’s persistent losses cannot be ignored. Quarter after quarter, the company continues to post net losses, which highlights the challenges of turning its scale and innovation into consistent profits. For me, this makes Snap a stock where patience is essential.

The long-term potential hinges on a few key factors: increasing average revenue per user (ARPU), growing the subscription base, and successfully stabilizing ad pricing through its upgraded ad platform. If management executes well on these fronts, Snap could emerge as a highly profitable, culturally entrenched platform with multiple revenue streams. If not, the stock may continue to experience volatility and remain a risky play for investors.

In short, I see Snap as a company with unique strengths and exciting long-term opportunities but it’s not without significant challenges. For those willing to accept the risk, the upside could be substantial, but caution and close monitoring are crucial.

Conclusion

Snap is far from the safest bet in the tech sector, but it’s undeniably one of the most interesting. The company has demonstrated that it can grow its user base, stay culturally relevant, innovate in augmented reality, and attract advertisers. What remains uncertain is whether Snap can convert all of this into consistent, sustainable profitability.

For investors, the choice comes down to perspective. If you believe Snap can leverage its cultural relevance, expand subscriptions, and successfully monetize AR and Spotlight, the upside could be substantial. On the other hand, if your priority is stability and predictable earnings, larger players like Meta and YouTube may offer safer, more reliable options.

Ultimately, Snap is a classic high-risk, high-reward company one where the long-term story depends heavily on execution, innovation, and the ability to turn engagement into consistent financial returns.

Snap Inc. FAQ

1. What is Snap Inc.?

• Snap Inc. is the parent company of Snapchat, a camera-first social media platform that emphasizes private messaging, visual storytelling, and augmented reality (AR) features. Snap also offers subscriptions like Snapchat+ for premium features.

2. How many users does Snapchat have?

• As of Q2 2025, Snapchat has 469 million daily active users (DAUs) and 932 million monthly active users (MAUs). Spotlight, Snapchat’s short-form video feature, has 550 million monthly active users.

3. How does Snap make money?

• Snap primarily earns revenue through digital advertising, with innovative ad formats like Sponsored Snaps and Spotlight ads. It is also building a secondary revenue stream through subscriptions such as Snapchat+ and Lens+.

4. What are Snap’s key growth drivers?

• Advertising Evolution: AI-driven bidding, automated ad tools, and new ad formats to improve advertiser ROI.
• Subscriptions: Snapchat+ and Lens+ offer recurring revenue.
• Short-Form Video (Spotlight): Increasing engagement, accounting for over 40% of content consumption.
• Augmented Reality (AR): 350 million daily AR users and 400,000+ developers contributing to lenses and experiences.

5. Who are Snap’s main competitors?

• Meta (Instagram/Facebook): Strong reach and advertiser trust, competing directly with Reels.
• TikTok (ByteDance): Major rival for user attention, with algorithm-driven viral content.
• YouTube (Alphabet): Dominates long-form and Shorts with robust ad tools.
• Pinterest, Reddit, X: Compete indirectly; Snap differentiates through AR and private, camera-first interactions.

6. What sets Snap apart from its competitors?

• Snap’s private-by-default design, focus on Gen Z users, and AR innovation make it unique. Unlike competitors that aim to serve everyone, Snap leans into intimacy, creativity, and visual communication.

7. Is Snap profitable?

• Snap is currently unprofitable. In Q2 2025, it posted a net loss of $263 million, though it has positive adjusted EBITDA ($41 million) and a strong cash position ($2.9 billion) to fund growth.

8. What are the risks of investing in Snap?

• Intense competition from Meta, TikTok, and YouTube.
• Pressure on ad pricing (low eCPMs).
• Execution risks with AR hardware (e.g., “Specs”).
• Dependence on advertising cycles and regulatory outcomes.
• Continued unprofitability could require additional capital, causing shareholder dilution.

9. What are the potential upsides?

• Continued user growth and engagement among Gen Z.
• Expansion of subscription revenue.
• Successful AR adoption could open new monetization channels.
• Upgrades to the ad platform could improve revenue per user and pricing stability.

10. What is the overall outlook for Snap?

• Snap is a high-risk, high-reward company. Its strengths lie in cultural relevance, innovative AR features, and a loyal young audience. Its challenges include profitability, heavy competition, and execution risks. Investors who believe in Snap’s long-term strategy may see substantial upside, while those seeking stable earnings might prefer larger, more established platforms like Meta or YouTube.